How One Bull Is Playing the Sara Lee Rally

By David Russell

Sara Lee (SLE) has been ripping higher, and at least one big trader it looking for the food stock to keep rallying.

optionMONSTER's Heat Seeker tracking program detected the purchase of 165,000 April 10 calls for $3.80 and $3.90 against open interest of 11,801 contracts. The trade drove options volume in the name to 246 times greater than average.

SLE rose 2.13 percent to $13.90 and is up 19 percent in the last month. The maker of Sara Lee bread, Angus Franks, and Kiwi shoe polish has been on a tear after raising its 2010 earnings forecast on Feb. 4 and adding $2 billion of share repurchases less than two weeks later.

The stock spent December and January to push through resistance at the $12 level, which had been support in before the market crashed in late 2008. Now that it's broken free, some chart watchers may expect SLE to rally to about the $15 level where it peaked two years ago.

Purchasing in-the-money options lets the investor leverage modest gains in the stock. Because their delta is 1, the calls will appreciate dollar for dollar with the share price. If the stock climbs 8 percent to $15, the calls will appreciate about 28 percent. (See our Education section)

Overall in the SLE, calls outnumbered puts by a bullish 448-to-1 ratio, according to the Heat Seeker.

(Chart courtesy of tradeMONSTER)